Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Sunday, January 26, 2014

Service Tax on Services by Resident Welfare Association (RWA)

Prior to 1st July 2012, services provided by RWA to its members were exempt from service tax if the total consideration received from an individual member by the RWA for the services did not exceed Rs.3000/- per member per month. However, with effect from 1st July, 2012, notification No.25/2012 provides for exemption to service by a RWA to its own members by way of reimbursement of charges or share of contribution up to Rs. 5000/- per member per month for sourcing of goods or services from a third person for the common use of its members.

Important Clarifications:

Ques: (i) In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties, in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]. Is service tax leviable?
(ii) If the contribution of a member/s of a RWA exceeds five thousand rupees per month, how should the service tax liability be calculated?

Exemption is provided specifically with reference to service provided by an unincorporated body or a non–profit entity registered under any law for the time being in force such as RWAs, to its own members. However, a monetary ceiling has been prescribed for this exemption, calculated in the form of Rs.5000/- per member per month contribution to the RWA, for sourcing of goods or services from third person for the common use of its members.

If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members.

Ques: (i) Is threshold exemption under notification No. 33/2012-ST available to RWA?
(ii) Does ‘aggregate value’ for the purpose of threshold exemption, include the value of exempt service?

Threshold exemption available under notification No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in the notification. Under this notification, taxable services of aggregate value not exceeding ten lakh rupees in any financial year is exempted from service tax. As per the definition of ‘aggregate value’ provided in Explanation B of the notification, aggregate value does not include the value of services which are exempt from service tax.

Ques: If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a ‘pure agent’ of its members, is exclusion from value of taxable service available for the purposes of exemptions provided in Notification 33/2012-ST or 25/2012-ST?

In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the Rule.

For illustration, where the payment for an electricity bill raised by an electricity transmission or distribution utility in the name of the owner of an apartment in respect of electricity consumed thereon, is collected and paid by the RWA to the utility, without charging any commission or a consideration by any other name, the RWA is acting as a pure agent and hence exclusion from the value of taxable service would be available.

Ques: Is CENVAT credit available to RWA for payment of service tax?

RWA may avail cenvat credit and use the same for payment of service tax, in accordance with the Cenvat Credit Rules.

1 comment:

  1. Dear sir I have received below advice from a CA but as per my understanding it don't seem to be correct-
    "With regard to the Payment of Service tax on the Maintenance charges collected from members/residents:-
    1. Sl. 28 of the Mega Exemption Notification No-25/2012, which exempts the “services by an unincorporated body or non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution-
    (a) as a trade union;
    (b) for the provision of carrying out any activity which is exempt from the levy of service tax; or
    (c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;”
    2. Further recently the department has issued a clarification vide Circular No-175/01/2014 dated 10.01.2014, which clearly clarifies that any amount collected from a member in excess of Rs. 5,000/-, the said excess amount over Rs. 5,000/- is taxable.
    For Example :- X society has 20 members and 15 of them pay Rs. 5,000/- per month and 5 members pay Rs. 7,500/-. The amount received from 5 members is in excess of Rs. 5,000/-. Under this clause the exemption will be available only upto Rs. 5,000/-. The tax will be payable on amount in excess of Rs. 5,000/- ie, Rs. 2,500/- per month per member in respect of such 5 members.
    2.1 We set out below the relevant paragraph of for your kind consideration:-
    3. With regard to the payment of Service tax of Rs. 9.10 lacs:-
    As state above the service tax will be leviable on the maintenance charges collected from members in excess of Rs. 5,000/- and on the aggregate amount collected from all the members, whose contribution exceeds the said amount. In the case of PWPA the aggregate amounts collected from members in excess of Rs. 5,000/- will listed and the said amount may not exceeds an amount of Rs. Rs. 10,00,000/- for the first Quarter. As taxable services upto Rs. 10 lacs is exempt under Notification 33/2012 ST dated 20.06.2012. The said notification provides an exemption from tax leviable on taxable services of aggregate value not exceeding the limit of Rs. 10 lacks. The definition of ‘aggregate value’ excludes amounts raised towards wholly exempt services. Hence, payment of Service for the First Quarter does not arise.
    Further, xxxAOA can avail the CENVAT paid on the input services for payment of Service tax, if any. "
    Could you pls help me out as our association don't have clarity on what is to be done. Maintenance charges per month is Rs 5500 . and approx. 490 members are there .
    Satya S